Students choosing the MoF program certainly aim at building careers in finance. Why then study Financial Accounting & Advisory within the MoF program?
Well, there are many arguments for leaving the more common paths in Frankfurt School’s flagship program. Let me first tell you an anecdote. As a professor, I certainly try to stay in contact with our graduates. And what I hear quite often from our alumni is that they had underestimated the importance of accounting at the time they were students. So why is accounting that important? Of course, it depends on what you are doing after graduation, and the new concentration prepares you for different career options.
1. Working in bank or corporate management
Here, a common, but unfortunately very naïve “misbelief” is that accounting would simply depict – as neutral as possible – what is happening in the real world. The (wrong) conclusion then is that accounting must be unimportant because you would of course prefer to be involved in shaping the real world, not just in “depicting” it. In fact, there are many examples for real world decisions which explicitly take the accounting consequences of alternatives of a given decision problem into account, mainly because corporate outsiders form their picture about the economic content of transactions by observing accounting figures only. Examples are manifold: One is that different structures of M&A transaction can have very different effects on the balance sheet of the acquirer. Another is that banks have an increasingly strong focus on how their various business activities will affect their “capital”, which is in the end measured based on the application of accounting principles. This of course implies that decision makers should have a sound knowledge of some important accounting rules. But they should also have a pretty good understanding of how markets react to corporate disclosures, how outsiders would assess accounting quality and how they form opinions about fundamental firm value.
2. Working for a consulting firm
Regulatory and economic changes threaten traditional business models, but they also create opportunities – and a demand for consulting services, of course. Many banks and corporations are not able or do not find it efficient to maintain sufficiently large departments that keep track with all these changes, but they also rely on consults to learn about best practices. Large M&A transactions, but also corporate restructuring are incidences which quite often draw on the advice of consultants. These incidences often go in hand with a strategic reorientation. All of this is related to accounting – which allows us to learn where we stand (before a restructuring), but also helps us in creating meaningful KPIs that allow tracking the implementation and success of new business strategies. Note that particularly big4 audit firms currently boost their advisory services. Students with a strong expertise in finance and a concentration in advisory would perfectly match their demands.
An entrepreneurial perspective
What is accounting about? Bookkeeping? Wrong answer according to a recent conference call which states: “Accounting IS big data”. Amazing, and I certainly tend to agree. Essentially, accounting helps us to produce data, and keep in mind that accounting not only involves the production of quantitative but also of qualitative – textual – data. Accounting research has developed many insights how to make sense of such data and these concepts can easily be applied to any kind of dataset. If a bank, for instance, wants to assess the likelihood that a new corporate customer turns out to be a fraudster, it might use data analytics to come up with something like a risk score. This is essentially a very similar mechanism to what Robocop (described in another blog post) does for filings, but exerted with internal data. Due to the increasing availability of data storage and processing capabilities, the demand for business analytics is increasing. Yes, this means we need techies, but we also need the questions and the appropriate methodology to answer them. Such guidance is what future accounts and advisors can deliver, and there is a lot of room for entrepreneurship in this area.
To conclude, MoF and accounting seem to be a perfect combination. In more detail, the concentration consists of five modules.
- M&A Accounting deals with the various techniques of consolidation and will answer the questions how different kinds of transactions will be depicted in the acquirer’s financial statements.
- Restructuring & Strategic Management is about strategic analysis and control, which help managers and consultants to identify successful business units, products and customers.
- Accounting and Decision Making introduces into the tools that various stakeholders – first and foremost: equity and debt investors – use in making economic based on publicly available accounting information.
- Corporate Valuation – as a joint module with the concentration in corporate finance – introduces students to state-of-the-art valuation techniques which help us to understand fundamental value. The concentration also includes an innovative
- AppliedAdvisoryProject which allows students to bridge the gap between theory and practice by working on a real world problem in close cooperation with practice.